Perhaps unsurprisingly for a country known for its automakers, shipbuilders, and heavy industry conglomerates, steel production is one of the most important industries in Japan.
What might be more surprising, though, is that when examined closely, Japan’s steel industry presents an interesting lens through which to view the country’s electric power industry. It does so not only because it is a major consumer of electricity, but also a major producer.
In fact, three of the largest players in the industry–Nippon Steel, JFE Steel, and Kobe Steel–generate a combined total of over 16,000 MW of electricity. For scale, if this were a single electricity company, it would have more generation capacity than five of Japan’s 10 former regional utility monopolies.
Nippon Steel’s Thermal Power Plants
For the rest of this article, let’s focus on Nippon Steel. The company is, with a 34% domestic market share, not only the largest steel producer in Japan, but also the world’s third largest.
Once it brings its latest 645 MW plant online in cooperation with J-Power in mid-2020, Nippon Steel’s electricity generation capacity alone will be larger than that of five of Japan’s 10 former utility monopolies.
The company owns power plants both independently and in partnership with a number of other companies including JERA and J-Power. While some of its plants primarily serve its own steel plants and deliver their excess electricity to their surrounding communities, others were built for the express purpose of selling electricity in the power market.
Nippon Steel has power plants in six of the ten utility grid zones. Below, let’s zoom in on two of those.
In the TEPCO (greater Tokyo) utility zone, Nippon Steel has over 7,000 MW of generation capacity–more than 10% of the total generation capacity in the zone.
The Kashima Kyodo plant, which it owns jointly with JERA, has a capacity of 5,660 MW which, for comparison, is about the same as the entire Shikoku zone. It is also enough to supply about 15% of the electricity consumed in Ibaraki Prefecture–the equivalent of the total consumed by all households in the prefecture.
TEPCO, with its 10 reactors at the two Fukushima plants shut down permanently and with the seven reactors at Kashiwazaki Kariwa (the world’s largest nuclear plant at nearly 8,000 MW) still far from gaining regulatory approval to restart operation, currently generates nearly 60% of its electricity at fossil fuel-burning thermal plants, the highest percentage among all of Japan’s incumbent utilities.
Kyushu Electric Power Company Zone
Nippon Steel has over 2,100 MW of generating capacity in the Kyushu grid zone, about the same as total non-residential wind and solar capacity in the region.
Kyushu Electric Power Company has faced challenges in the post-Fukushima era related to both nuclear power generation and renewable generation.
After the shutdown of all nuclear plants in Japan following the Fukushima disaster, Kyushu Electric was the first to bring a reactor back on. It did so at its Sendai plant back in 2015. Earlier this spring, though, one of the two Sendai reactors had to be shut down again because the company failed to complete construction of new anti-terrorism facilities by the regulator’s deadline.
At Kyushu Electric’s Genkai plant, construction of the same new facilities at one of its four reactors had to be stopped in mid-April when a contractor was found to have COVID-19. All 300 construction workers were sent home, making the regulator’s deadline of summer 2020 for completion of the construction much tighter.
On the renewables side, due to high solar irradiance, Kyushu Electric saw significant growth in privately owned solar plants under the post-Fukushima feed-in-tariff scheme implemented by the central government. That introduced a large amount of variable generation which Kyushu Electric has to take into account in maintaining grid stability.
In managing this issue, the company has frequently used curtailment. However, since mid-2018, the central government has been pushing a “connect and manage” approach to handling variable renewable generation, meaning that Kyushu Electric has to utilize resources like pumped storage, its interconnection to the Chugoku grid zone, and closer coordination with solar plant operators in order to minimize its use of curtailment.
Nippon Steel plans to shut down one of its blast furnaces in 2022 due to decreased demand and it has announced temporary shutdowns of three other furnaces because of further demand cuts brought about by COVID-19.
Contraction of the steel industry threatens to be painful for the Japanese economy, which was already in a downturn even before COVID-19, particularly for the regional economies in which the plants operate.
The potential impacts are complicated further by the steel industry’s position not only as a major power consumer, but also a major power producer, on par with many of the major incumbent electricity utilities in its generation capacity.
Japan is under heavy international pressure to cut carbon emissions, and power plants owned by the steel industry are overwhelmingly run on fossil fuels.
Grid operators like Kyushu, with high solar penetration and an uncertain future for its baseload nuclear plants, already face potentially great challenges in “right-sizing” investments in grid infrastructure in order to optimally maintain system operations. Plant closings by the steel industry–with the potential to affect not only power demand but also power generation–add another variable.
Japan’s steel industry is an important point of intersection for several domestic and international macroeconomic factors, and also for more granular issues related to power generation and consumption.
We will be keeping a close eye on the steel industry in Japan throughout the COVID-19 period and into the post-COVID-19 era.